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Sunday 20 Aug 2017 | 08:21 | SYDNEY
Sunday 20 Aug 2017 | 08:21 | SYDNEY

China and the middle-income trap



20 June 2012 14:18

In today's Linkage, Sam sends us to this Free Exchange post on Greece, China and the Middle-income trap. It references this World Bank report on China 2030 and in particular the discussion set out in Box 1 on p.12, as summarised in this powerful chart:

The story of this picture is the difficulty of transitioning from middle-income to high-income status, and hence the dangers of becoming stuck in the so-called middle-income trap. The Bank report points out that, of 101 middle-income economies in 1960, only 13 (Equatorial Guinea, Greece, Hong Kong SAR, Ireland, Israel, Japan, Mauritius, Portugal, Puerto Rico, Republic of Korea, Singapore, Spain and Taiwan) had managed to graduate to high-income status by 2008.

For pessimists about China's future growth prospects, odds of 13/101 don't look too good and provide another significant reason to be cautious about predictions of an inexorable rise.

It's a fair point. I certainly agree that the historical record suggests that it's been difficult to make this economic transition. Still, by playing around with the sample of countries, you can get a rather different message.

For example, it's not unreasonable to argue that the East Asian economies have pursued their own distinctive growth path. If we start with the World Bank's 101 middle income countries in 1960 but then restrict our sample to East Asian economies, the odds suddenly look an awful lot better: of 14 countries, five had made it to high-income status by 2008.

You could push this even further, if you wanted: it has been argued that there is a difference between the Northeast and Southeast Asian growth models. And of the six middle-income Northeast Asian economies in 1960, four had graduated to the high-income category by 2008.

Two points, then:

  1. Those old arguments  about whether there is a distinctively successful East Asian growth model (remember the heated debate about this famous World Bank Report on the East Asian Miracle from the early 1990s?) may still have some useful life in them.
  2. Sample selection matters, including in defining the relevant population (all middle income countries? Just East Asian ones?).


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